SEC Eyeing a Reduction to Accredited Investor Requirements
Recently in the Wall Street Journal, the Security Exchange Commission announced a proposed expansion of the definition of “accredited investors” to effectively broaden the pool of potential investors for private companies.
The apparent challenge they are addressing is the current problem with recent companies going public over the last year. Companies like Uber, Lyft, SmileDirectClub, and Pinterest are just a few of the billion dollar public offerings currently priced significantly lower than where they debuted. By the time the stock of these companies is available to retail investors, its overpriced. Put another way, the vast majority of the wealth is generated before the public offering and reserved almost exclusively for high net worth individuals and the institutions representing them. This has led some to wonder whether the entire accredited investor concept is contributing to the wealth gap.
This latest announcement represents a renewed effort by the SEC to make private company investments accessible to a wider audience, while improving the ability for companies to raise capital. As long as companies are willing to provide a certain level of transparency to shareholders, it is a win-win for both sides.
Of course, there are ways to navigate the complicated regulation – we at Nth Round have helped lots of companies to unlock their equity, enhancing its value, and bringing the benefit of liquidity to shareholders. However, these proposed changes by the SEC will make our vision and our customer’s goals a lot easier.